More than three and a half years after the landmark Brexit referendum was passed by British voters, the day has finally arrived for the United Kingdom to officially depart the European Union.
Having been a member of the union since 1973, the country will enter a transition period before forging its own way in the world. During this time, free movement of people and trade between the U.K. and the bloc of the remaining 27 European countries will continue as before. The U.K. will also keep paying into the EU’s budget, but British lawmakers will no longer sit on the European Parliament or help shape EU rules. Representatives of both parties will begin negotiations for a free trade deal next month.
As the transition gets underway, investors may be interested in value opportunities among British companies that are trading below the Peter Lynch value.
A renowned investor who generated an average annual return of 29% while managing Fidelity’s Magellan Fund, Lynch developed this strategy in order to simplify his stock-picking process. With the belief good, stable companies eventually trade at 15 times their annual earnings, he set the standard at a price-earnings ratio of 15. Stocks trading below this level are often considered good investments since their share prices are likely to appreciate over time, creating value for shareholders. The GuruFocus All-in-One Screener, a popular Premium feature, also looked for companies with a business predictability rank of at least two out of five stars and a 10-year revenue per share growth rate of at least 6%.
As of Jan. 31, British companies that met these criteria were Braime Group PLC (LSE:BMT, Financial), Creightons PLC (LSE:CRL, Financial) and SThree PLC (LSE:STEM, Financial).
Braime Group
The industrial distribution company, which manufactures metal presswork, has a market cap of 23.28 million pounds ($30.8 million); its shares closed around 16.5 pounds on Thursday with a price-earnings ratio of 10.33, a price-book ratio of 1.56 and a price-sales ratio of 0.62.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
GuruFocus rated Braime’s financial strength 8 out of 10. Although the company has issued approximately 0.28 million pounds of new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. In addition, the high Altman Z-Score indicates it is in good financial health.
The company’s profitability scored a 9 out of 10 rating on the back of operating margin expansion, strong returns that outperform a majority of competitors and a high Piotroski F-Score of 8, which implies business conditions are healthy. Although Braime has recorded a slowdown in revenue per share growth over the past 12 months, it still has a five-star business predictability rank. According to GuruFocus, companies with this rank typically see their stocks gain an average of 12.1% per annum over a 10-year period.
There are currently no gurus invested in the stock.
Creightons
The consumer goods company, which manufactures personal care and beauty products, has a market cap of 26.55 million pounds; its shares closed at 0.41 pounds on Thursday with a price-earnings ratio of 10.25, a price-book ratio of 1.85 and a price-sales ratio of 0.64.
According to the Peter Lynch chart, the stock is undervalued.
Creighton’s financial strength and profitability were both rated 8 out of 10 by GuruFocus. Despite issuing approximately 0.73 million pounds in new long-term debt over the past three years, it is at a manageable level due to comfortable interest coverage. In addition, the Altman Z-Score suggests the company is in good financial standing.
The company is also supported by an expanding operating margin, strong returns that outperform a majority of industry peers and a moderate Piotroski F-Score of 5, which indicates business conditions are stable. It also has a three-star business predictability rank even though its revenue per share growth has slowed over the past year. GuruFocus says companies with this rank typically see their stocks gain an average of 8.2% per year.
No gurus currently hold the stock.
SThree
The London-based business services company, which provides contract and permanent recruitment services for the science, technology, engineering and mathematics, or STEM, industries, has a market cap of 484.63 million pounds; its shares closed at 3.65 pounds on Thursday with a price-earnings ratio of 11.77, a price-book ratio of 4.12 and a price-sales ratio of 0.36.
Based on the Peter Lynch chart below, the stock appears to be undervalued.
SThree’s financial strength and profitability were both rated 8 out of 10 by GuruFocus. In addition to sufficient interest coverage, the company is supported by a robust Altman Z-Score of 7.39.
It also has an expanding operating margin, stable returns, consistent earnings and revenue growth and a moderate Piotroski F-Score of 4. SThree has a three-star business predictability rank.
The Oakmark Intl Small Cap (Trades, Portfolio) Fund has a 3.19% stake in SThree.
Disclosure: No positions.
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